For the global macro trader there are essentially two different kinds of trades: relative value and directional. Relative value is essentially when you are looking at two different instruments that have reliable historical relationships and trading off that relationship. Directional trading, as the name implies, is when you place a bet saying that you think oil, gold, etc is going up or down.
Directional trading comes in several different styles. Some traders do their fundamental work and then buy or short based solely upon what they think the asset will do. Others trade purely on gut feel. And yet others trade technically looking at charts. Another large class of so-called global macro traders use automatic trading systems. And then finally we have the people that try and incorporate all the different types into one.
Those traders that trade based solely off of fundamentals typically will have good long term results but have what some would deem excessive short term volatility due to their lack of respect of the actual price. Typically id they think something is undervalued they will keep buying more and more which makes a lot when you are right but can really hurt when you are wrong.
Trading from the seat of your pants is typically a bad way to go about trading. That being said if you are good at risk management it can be one way to trade. If you like watching fed announcements and trading off of them then good luck. It doesn't work for most that try it.
Some traders look only at technical analysis and as long as they use proper risk management they can be very successful. In fact one famous fund manager says that at the end of the day he is a slave to the tape and proud of it. Technical analysis doesn't tell us if a position is under or overvalued but only tells us what the price has done.
Then we come to the so called macro traders. We say so called because in actuality they are just an automatic version of the technicians. CTA or commodity trading advisers typically program automatic long term trend following models with built in risk management systems. A typical system might buy an asset when it hits a new 40 day high and then places a protective stop it it falls 3 ATR's below it. While the systems vary the underlying results are good. Historically CTA trend following systems have been quite profitable.
The last type of trader that we look at is the one who realizes that there is value in all the approaches. They will look at a chart, use fundamentals, their own judgment, and solid risk management. Using all of this they are better able to make consistent out sized gains along with lower drawdowns. - 16928
Directional trading comes in several different styles. Some traders do their fundamental work and then buy or short based solely upon what they think the asset will do. Others trade purely on gut feel. And yet others trade technically looking at charts. Another large class of so-called global macro traders use automatic trading systems. And then finally we have the people that try and incorporate all the different types into one.
Those traders that trade based solely off of fundamentals typically will have good long term results but have what some would deem excessive short term volatility due to their lack of respect of the actual price. Typically id they think something is undervalued they will keep buying more and more which makes a lot when you are right but can really hurt when you are wrong.
Trading from the seat of your pants is typically a bad way to go about trading. That being said if you are good at risk management it can be one way to trade. If you like watching fed announcements and trading off of them then good luck. It doesn't work for most that try it.
Some traders look only at technical analysis and as long as they use proper risk management they can be very successful. In fact one famous fund manager says that at the end of the day he is a slave to the tape and proud of it. Technical analysis doesn't tell us if a position is under or overvalued but only tells us what the price has done.
Then we come to the so called macro traders. We say so called because in actuality they are just an automatic version of the technicians. CTA or commodity trading advisers typically program automatic long term trend following models with built in risk management systems. A typical system might buy an asset when it hits a new 40 day high and then places a protective stop it it falls 3 ATR's below it. While the systems vary the underlying results are good. Historically CTA trend following systems have been quite profitable.
The last type of trader that we look at is the one who realizes that there is value in all the approaches. They will look at a chart, use fundamentals, their own judgment, and solid risk management. Using all of this they are better able to make consistent out sized gains along with lower drawdowns. - 16928
About the Author:
Dave helps people find different Global Macro Trading opportunities. The Macro Trader is a research firm that writes a weekly newsletter focused on actionable macro trading opportunities using ETF's.
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